Japan Core Inflation Turns Negative, Yen Strengthens

Falling energy costs and a slowdown in economic activity are depressing prices, stirring worries about a come-back of deflation...


As expected, the Bank of Japan today kept its key interest rate unchanged at Negative -0.100%.

At the same time, the central bank announced the launch of a new lending program worth 30 trillion yen to support small businesses hit hard by the coronavirus pandemic.

This new program, which funnel money to companies via commercial banks and other financial institutions, will bring the BOJ's coronavirus response measures to 75 trillion yen.

In fact, before the central bank's announcement, Japan's official data showed that Core Consumer Prices contracted 0.2% on year in April (-0.1% expected, +0.4% in March), the first Negative reading since 2016. Falling energy costs and a coronavirus-induced slowdown in economic activity are depressing prices, stirring worries about a come-back of deflation.

Source: Trading Central

Meanwhile, the Japanese yen has regained some strength against the U.S. dollar.

On an Intraday 30-minute Chart, USD/JPY rebounded to an Overhead Resistance at 107.85 yesterday before retreating.  

Source: GAIN Capital, TradingView

Currently USD/JPY has returned to levels below the 20-period moving average, which has just crossed below the 50-period one.

And the relative strength index has not yet recovered the neutrality level of 50, suggesting a lack of upward momentum for the pair.

The technical configuration points to continued downside pressure.

The level of 107.85 (the high of yesterday) is acting as a key resistance.

Unless this level is surpassed, USD/JPY is expected to seek Downside Support at 107.35 and 107.20.

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